Ministers in the Lokpal panel involved in Sahara Scam?


The largest impending Indian bankruptcy affecting the largest number of people has gone unnoticed by the media. It appears that either the media has not understood the scam or having understood it has deliberately underplayed it.

But then such is the nature of the scam, and at the risk of breaking the narration the author would like to narrate an incident relating to the 2G scam.

After having filed a detailed complaint on the 2G scam with the CVC (enclosed in SC petition)  showing the link between Reliance, Swan, Tiger Trustee and the transfer of the Swan Telecom on the day that Reliance got the GSM license, the author was approached by a correspondent of a leading TV channel for a scoop.

The author offered her a “big exclusive story” provided she would do it. To which the response was she would if it did not concern the two brothers. Years later, she would take the same story and peddle it on her channel as her own exclusive! As would others in the media for having unearthed the scam!

Is the media in this case feigning ignorance or is being courteous in not covering a fellow owner of the print and electronic media?

The entire scam has been exposed in a brilliant order of SEBI dated 23/6/11 and is available on the web site of SEBI.

Coming back to the present scam.

Sahara for over a decade has employed the strategy of targeting unbanked people in  backward areas for mobilizing deposits through  thousands of agents. These agents work on hefty commission basis, are mostly part timers, and extol the ‘bigness and reputation’ of the Sahara, based on their sponsorship of the Indian cricket team! Default in payment of installments on recurring deposits results in forfeiture of the deposited amount and payment of matured amount is obtained with great difficulty.

So Sahara has managed to build a depositor base of  over 65 lakh poor people, who are marginal savers, never approached by a bank to deposit their small savings and in most  cases do not have the identity papers to open a account. They would be afraid to approach a bank and very few would welcome their accounts.

The figure of 65 lakhs could be an inflated figure if the group is also laundering money on behalf of politicians. One does not know as the group is facing investigation from ED too. The huge depositor base of 65 lakhs has to be viewed against the 150 lakhs investor in shares through depository accounts.

Equally important is the amount involved in the scam. Does anyone know?

No one, including RBI, Registrar of Companies, Finance Ministry, Allahabad High Court and the Apex Court, or SEBI, can tell you the amount involved in the scam because Sahara has refused to disclose the amount and has not filed the mandatory returns. The Allahabad High Court while rejecting the application for continuation of stay order on grounds of the company refusing to cooperate with SEBI stated:

“A person, who comes to the Court, is supposed to come with clean hands and bona fide intentions, and has to abide by the orders passed by the Court, more so in a case where the parties’ counsel agree for certain actions to be undertaken. If some assurance is given by any person to the Court, as has been done in the present case, and the said assurance/understanding is not honoured, the Court would not come to his rescue. The application is therefore, rejected.”

Though the company did not volunteer any information, SEBI, from the electronic filing by one of the companies, could establish that one of the companies had managed to collect over Rs 4800 crores in 15 months for the period March 08 to June 09.

As the figure of Rs 4800 crores relates in large part to global recession it is reasonable to conclude that over Rs 15,000 crores may have been raised by the two companies in the succeeding two years. The number of investors involved are a staggering 66 lakhs as admitted by the company. It works out to an average investment of Rs 20,000 per investor(One hopes that there is no money laundering of political funds).

According to SEBI there is not much fixed assets against the deposits. It means that the company is not solvent and not in a position to return the money and the ponzi scheme has come to an end.

SEBI in its order dated 23/6/11 states:

“Going by the financial statements, the two Companies do not have adequate fixed assets to secure their OFCD issuances, even if they choose to do so. In other words, the magnitude of fund raising through these unsecured vehicles exceeds the assets of the two Companies by far. Further, for issuances of secured debentures, a charge needs to be created on the assets of the company and Form 8 and Form 10 have to be filed with concerned Registrar of Companies (pursuant to Section 125 read with Section 128 of the Companies Act, 1956). Consequently, details regarding the same would also have to be placed in the public domain, where it would attract public scrutiny.”

Most of the money deposited has been squandered on advertisements (Indian Cricket team is paid more that 3 crores per match), electronic and print media business which are not profitable businesses. The land purchased is not in the name of company accepting deposits.

Benamis were used to purchase land as early as 1998. The name of various employees of Sahara Mass Communications and other sister organization of the Sahara group were used. Some of these names are : Rajeev Saxena, Sunil Bajaj, Ashok Ohiri, Nisheet Joshi, Vandana Bhargava and Nand Lal. Of these, two employees fell out with the group and submitted affidavits with Income Tax Authorities that the money was benami and should be forfeited.

So the conclusion of SEBI that there are no assets against the deposits is reinforced. It is for this reason that the group is not making available its books inspite of the orders of the Court.

Sixty-five lakh people therefore will lose over Rs 15,000 crores deposited in Sahara, because the politicians did not do their job and allowed the company to keep on collecting money from the poor people despite RBI having banned Sahara from collecting deposits. For most of these depositors it represents their entire savings and a large number of poor people are the victims of the scam.

This is not a matter of black money stashed abroad on which our politicians have ready made excuses. It is money illegally taken away from the marginal savers right under the nose of the senior Ministers who have been drafting the Lokpal Bill. In fact they have been active parties to the scam and its cover up.

Who then are the Ministers of the government  responsible for the loss? Surprisingly these are the three Ministers involved in the drafting of the Lokpal Bill.

But first, the fraud in a nutshell. Sahara, as already stated was accepting deposits from the public from a very long time as a non-banking finance company. These deposits were declared illegal by the RBI in that they did not comply with safety norms stipulated under the law for NBFC (investment of the percentage of proceeds in approved government securities) and companies accepting deposits.

As the amount involved was large RBI instructed the group not to accept fresh deposit and to wind down their deposit in a time bound manner.

Sahara did not have the money to return to the existing investors. The refund of the amount collected illegally would lead to the collapse of the entire group and therefore another illegal scheme for raising deposit from the public was thought off.

The new scheme was to raise deposit and call it optionally fully convertible debentures so that the depositor would have the option to subscribe to the shares at the end of the maturity of the deposit. Two separate companies of the group were floated for the purpose. The scheme was for fixed and recurring deposits which on maturity would give the option to the depositor to convert the matured sum into shares..

This was done in order to avoid scrutiny of the RBI and to collect the money under the Companies Act.

However while doing so a bigger fraud was committed as the Companies Act prohibits any company from raising money for shares and debentures from more than fifty persons without making a public issue and obtaining permission of SEBI. Further a public issue is open for ten days whereas the Sahara companies kept their issue open indefinitely.Till the fraud was detected the issue has been open for two and three years respectively.

The  fraud was detected by SEBI when the group filed documents (red herring prospectus) for a public issue of another group company in 2010 with SEBI.

SEBI wanted details of the other two companies which had been collecting deposits since 2008 and 2009. Even the basic information on the number of depositors and the amount collected was not provided, apart from the details of the issue, filing etc.

One of the excuses given was that the matter was referred to the Ministry of Corporate Affairs seeking clarification and reply was awaited. How could there be a reply when the Minister was none other than Salman Khurshid, a friend of Amar Singh (known to be close to Sahara Group)? It is also not a coincidence that the Minister was a member of the government on the joint drafting panel and his role in protecting Sahara during his entire tenure as Minister would not have stood scrutiny of an independent Lokpal .

Sahara wrongly argued that the issue was not a public issue inspite of the offer being made to 65 lakh persons and the matter was not under the jurisdiction of SEBI but under the Ministry of Corporate Affairs. As Sahara operated out of UP and the Minister is from UP and a lawyer, he should have made every endeavour to put an end to the scam. Instead he helped it along and therefore should take responsibility for the same as he was the Minister upto 1/1/11.

If Salman Khurshid had a role in the scam then could Mr Moily, the other member of the Lokpal drafting panel be far behind. He in turn was responsible for giving a legal opinion in favour of the company that the deposit/debenture were not under SEBI. And to give the opinion he went shopping for legal opinion and chose the one which was convenient to him.

He too is close to Amar Singh as witnessed recently when he withdrew sanction for prosecution of  an ex-ED official Ashok Agrarwal on the recommendation of Amar Singh.

And of course, the omnipresent and the all powerful Omita Paul, the super secretary of the Finance Minister, appointed without merit and only because she is a favourite of the Finance Minister, too is involved. Her educational qualification are in Chemistry (MSc), Social Science (M Phil) and Journalism (BA). Bereft of any knowledge of finance, she lords over key appointments. For SEBI she has a mission to get rid of all the competent and honest senior officials and replace them with pliable persons who will be amenable to corporate lobbyists.

She tried to intimidate the officer in SEBI who was to pass the order on the Sahara issue by initiating income tax inquiry on anonymous complaint.

The Finance Minister should explain as to how she has been appointed to the post and given de facto powers which imperils the economy of the country in that independence of the regulator of the capital market has been undermined. Her role in interfering on behalf of Sahara needs to be investigated. In fact her appointment and her meddling with key decisions in the Finance Ministry needs to be brought out in the public domain.

No wonder Mr Pranab Mukerjee, the last surviving Minister of the Emergency days and the one who opposed the swearing in of Rajiv Gandhi as Prime Minister is vehemently opposed to the Jan Lokpal Bill. And while giving lessons in democracy to the nation he himself is involved in making arbitrary appointments to undeserving persons and vesting them powers to undermine both democracy and the economy.

Also Read:

SEBI Interim Order on Sahara

SEBI Final Order on Sahara

(Arun Agrawal is the author of the book Reliance: The Real Natwar. The opinions expressed by the author and those providing comments are theirs alone, and do not reflect the opinions of Canary Trap or any employee thereof)

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